Pension Profile Preferences: The Influence of Trust and Expected Expenses
40 Pages Posted: 1 Dec 2016
Date Written: November 28, 2016
This paper studies the influence of people’s expectations about expenses during retirement and trust in pension funds on preferences for different pension arrangements. We find that although most workers prefer a flat-rate annuity, many workers want to deviate from it. The most popular option is a high/low, annuity-based profile, followed by a partial lump sum payment. One of the underlying reasons for preferring a more flexible pattern is an expected shift in expenditure during retirement. Our regressions reveal that workers who expect declining expenses during retirement are more likely to opt for a high/low annuity-based pension and/or a lump sum payment at retirement than workers who expect stable expenses. Furthermore, we find that workers and pensioners who do not trust their pension fund are more likely to prefer a lump sum over annuity-based arrangements than workers and pensioners with a high degree of trust.
Keywords: consumption, trust, pension annuities, lump sum
JEL Classification: D14, D91, G20, J26
Suggested Citation: Suggested Citation